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Reviewing of Accounting Information System on Account Payable Process in a Pharmaceutical Company?

Accounting Information System

Businesses today operate in a highly competitive and changing global business environment and therefore require information systems that provide speedy responses to complex business enquiries. An Accounting Information System (AIS) is a system of collection, storage and processing of financial and accounting data that is used by decision makers. An accounting information system is generally a computerbased method for tracking accounting activity in conjunction with management or externally by other interested parties including investors, creditors and tax authorities. Accounting information systems is a tool that organizations can use to achieve stronger, more flexible corporate culture to face continual changes in the environment.

Initially, accounting information systems were predominantly developed “in-house” as legacy systems. Such solutions were difficult to develop and expensive to maintain. Today, accounting information systems are more commonly sold as prebuilt software packages from vendors such as Microsoft, Sage Group, SAP and Oracle where it is configured and customized to match the organization’s business processes. As the need for connectivity and consolidation between other business systems increased, accounting information systems were merged with larger, more centralized systems known as Enterprise Resource Planning (ERP). Before, with separate applications to manage different business functions, organizations had to develop complex interfaces for the systems to communicate with each other. In ERP................

Account Payable

Accounts payable is money owed by a business to its suppliers shown as a liability on a company’s balance sheet. It is distinct from notes payable liabilities, which are debts created by formal legal instrument documents. When a company orders and receives goods (or services) in advance of paying for them, we say that the company is purchasing the goods on account or on credit. The supplier (or vendor) of the goods on credit is also referred to as a creditor. If the company receiving the goods does not sign a promissory note, the vendor’s bill or invoice will be recorded by the company in its liability account Accounts Payable (or Trade Payables)...........

ABC Pharmaceutical Company

The company was established in the year 1985 with four cardiology products and a team of two members for marketing its products. It had its compact manufacturing facility at Jamnagar in Gujarat. It soon grew to become a multinational pharmaceutical company with its headquarters in Mumbai, Maharashtra. The company today has its own manufacturing facility and is independent on outsourcing its manufacturing. The manufacturing operation is spread across 32 locations, including plants in the UK, Argentina, Czech Republic, China and Jordan................

Existing Accounting Information System in ABC Pharmaceutical Company

With its exponential growth over the years it became essential for a company such as ABC pharma to be very accurate and strict in its accounting practice. ABC awoke to the wave of ITES revolution that was taking place in the world and also adopted the software integration to its company. The company in its initial stages was dependent on external sources to manufacture the drugs. However, with the rapid growth and expansion in the drug industry it stopped outsourcing its drug manufacturing and began household operations............

The Vendor Relationship Management

For any company to make its success it is very necessary to have a firm vendor base. A good vendor relationship will lead to better understanding and better deals paving way to a profitable future for the company. Thus, the account payable process must also facilitate vendor management strategies. A pharma company should have a very robust vendor base...........

Enhancing the system

A system however meticulously devised has always a scope of improvement. Thus the system adopted by the company was timely but is not as efficient as it may look. The company still maintains that there is a desperate need to enhance the existing system for wealth maximization. This requires modifications within the existing system to generate better revenue, which in turn requires reduction of cycle time in the accounting information system process..........

Annexure III (b): Site-wise Analysis for Time between Bill Date to Receipt Date and Receipt Date to Receipt Confirmation Date

Teaching Note Preview

Reviewing of Accounting Information System on Account Payable Process in a Pharmaceutical Company?

Synopsis

ABC pharmaceutical limited is a leading Indian multinational pharma company. The company is generic manufacturer of drugs related to cardiology, diabetes, neurology and psychiatry. The company started out as a humble marketing venture with just 2 sales men aboard later it transform itself a manufacturer. With the advent of globalization the company soon became one of the largest Indian multinational with its major export and operation markets being the UK. The growth was encountered with several challenges. The challenge of maintaining an efficient account payable process system and vendor management was one of the prominent issues. The company thus developed a centralized online transaction processor also known as C.O.L.T.P. It enabled the company to organize and segregate the Account payable processor using accounting information system. The Accounting information system using IT enabled services was a timely initiative taken by the company during its growing stage.

The process was segregated into cycles based on chemical purchases and non-chemical purchases. The chemical purchase cycle required a stringent quality check while in case of non- chemical purchases, cycle only included need and conformance test. The company provided a credit rating or credit term to the items purchased so as to enable facilitate payment to the vendors within the defined credit period....................

Pedagogical Objectives and Target Audience

• The object of the case is to enable the audience to understand the role of accounting information system process in an account payable process

• This case tries to identify the issues in present system of payment process. Also, try to find out novel techniques for reduction of cycle time

• The target audience includes the professionals, researchers and students in the field of managerial accounting

Assignment questions

I. Can the modified system of account payable process improve the wealth of the company. If so how?

II. Can you suggest measures for reducing the overall cycle time of account payable process?

III. .................................

$5.48

Rs 0

Product code: FIN-1-0010, FIN-1-0010A

Abstract

The case study discusses on modification of existing accounting information system being practiced by a leading pharmaceutical company. The transaction in the existing system was strictly through a Centralized Online Transaction Processor (C.O.L.T.P). Even though the company had well-defined and established accounting information system, the payments to vendors were delayed causing the problem of vendor relationship. The company had a focus on imperative measures for maximizing earnings while continuing the cordial relationship with its vendors. Hence, this case study addresses the issues in the present account payable process and identifies that reduction of cycle time in payment process could enhance effectiveness of the existing payment system. The suggested improvement in the accounting system could contribute towards generation of additional profits and enhanced vendor relationship.

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